THE GREAT thing about being a capital city, and the home to a research university, and a major military installation, is that you get a stable economy with an abundance of good-paying jobs.
The bad thing about being a capital city, and the home to a research university, and a major military installation, is that government doesn’t pay property taxes. Add in regional hospitals and a blessed abundance of churches and museums and all of those tax-exempt lobbying organizations that make their home in the city, and Columbia collects property taxes on as little as half the property in town. (Some estimates put the figure as low as a third.)
Yet all those buildings owned by government and other tax-exempt organizations still require police and fire protection, and all the people who work in those tax-exempt buildings put the same strain on other city services as the people who work in buildings where the owners pay taxes.
That’s why Columbia has tried over the years to diversify its revenue stream, so it can rely less on property taxes and more on taxes and fees that cover all the property and all the commerce that’s done in town. That was part of the thinking behind the hated storm drainage fee. It’s one reason the city charges customers for water and sewer, rather than treating it as a city service that is paid through property taxes. It’s why the city charges business license fees, which bring in nearly as much money as property taxes. (Nearly a third of what otherwise would be collected in property taxes is offset by the local-option sales tax.)
So it’s quite sensible for the City Council to increase the franchise fee that it charges SCE&G, because the company will pass the fee along to most of its city customers — including many who don’t pay property taxes. (And yes, this absolutely is a tax increase on city residents and businesses; any attempt to characterize it as anything other than that is simply dishonest.)
It’s also quite sensible to consider charging business license fees to non-profit organizations that actually run businesses, as City Councilman Moe Baddourah has proposed. This would further broaden the city’s tax base, and it would remove an unfair advantage that non-profits have when they compete with tax-paying businesses.
The organizations that come to mind when we say “non-profit” — churches, food pantries, homeless shelters and other social-service agencies — absolutely benefit the community. We exempt them from paying their fair share of property taxes because we recognize the good they do, and want to encourage them to remain in our communities.
Of course, lots of non-profits merely work for the benefit of their members — think of, oh, ideological think tanks, or lobbying associations, from the Beer Wholesalers Association and the Conservation Voters of South Carolina to the State Employees Association and the Municipal Association. And I’ve never understood why they are exempt from taxes at the local, state or federal level. But that’s a different topic, for a different day — perhaps a day when we talk about the way some of those tax-exempt groups fight efforts to make them tell us where they get the money they spend to skew our elections.
The topic here is those non-profits that we think of as altruistic but that have as a sideline running a business: the hospital cafeterias and florists, the church day-care centers, the physicians’ practices that used to be owned by physicians but now are owned by hospitals. And the idea of treating them as businesses when it comes to business licenses is quite sensible.
What’s not sensible is rushing headlong into such a change without working through the details.
At a recent City Council meeting, other members raised smart questions about why Mr. Baddourah was targeting hospitals and ignoring churches and other nonprofits that sell goods or services to the public. And the council wisely put off action as a result of those questions.
I just hope that’s not a ruse to sweep the idea under the rug.
I hope it’s part of a sincere effort to gather information about all the types of non-profit businesses, and come up with a consistent plan to add all of them. Or at least to have a good reason for leaving out any that are left out. You know, to avoid equal-protection lawsuits.
I hope council members will take into account what the staff can and can’t project about how much money this would generate, and not operate blindly.
If the details get sorted out, I don’t see a downside to this idea.
The poor pay more
Unfortunately, there usually is a downside when you broaden the tax base to cover tax-exempt organizations — particularly when you pair that with decreased property taxes, as the city wants to do with the utility tax.
The problem: When you cast your net wide enough to catch nonprofits, it’s easy to reel in those individuals who can least afford to pay more. So while the storm drainage fee is charged to churches and governments and lobbying groups, it also is charged to homeowners, including the poorest ones. It also is charged to rental property owners, who pass that along to renters. The same is true with a utility franchise fee.
A lot of people think this is fine because they think that people who don’t own property — or, at the state and federal level, people who don’t make enough money to pay income taxes — don’t pay their fair share of taxes. And I’m sure there are places where that is true. South Carolina is not one of those places.
South Carolina is a place where everybody except the top 5 percent of earners pay about the same portion of their income in taxes — from 6.9 percent to 7.6 percent, according to the most recent study I’ve seen. (The top 5 percent pay on average just 5.8 percent, while the poorest fifth pay 7.5 percent.)
If Columbia increases the utility franchise fees, the poorest will see the percent of their income that goes to taxes rise more than everyone else, because the total dollar increase will be similar for everyone, regardless of income. It’s still probably a reasonable thing to do, because it will mean a larger portion of city revenue comes from nonprofits and others that don’t pay their fair share now, but it is, or should be, a difficult trade-off.
Source of all problems?
This problem isn’t of the city’s making. The problem is that, aside from the business license tax, our sales-tax-loving Legislature doesn’t give cities and counties ways to diversify their tax bases without shifting the tax burden toward the poor.
Worse, our sales-tax-loving Legislature keeps eating more and more holes into the sales tax, which, for complicated reasons I won’t go into here, makes our most regressive tax even more regressive.
And when our sales-tax-loving Legislature does give cities and counties some flexibility, it does it in the form of … the sales tax. You know, the regressive tax.
So cities and counties — particularly taxable-property-deficient cities such as Columbia — have to grab whatever options they can to keep homeowners and private businesses from pulling all the weight for governments and nonprofits.
Ms. Scoppe can be reached at email@example.com or at (803) 771-8571. Follow her on Twitter @CindiScoppe.